Owners of the San Remo Hotel in San Francisco have lost the latest round in their 11-year litigation over the city’s ordinance restricting the conversion of residential hotels to tourist use.
In the latest decision, the Ninth U.S. Circuit Court of Appeals declined to rule on the hotel owners’ takings claims because the state Supreme Court had already decided the claims. Because the state court had ruled, the Ninth Circuit panel said it was precluded from revisiting the same questions.
"The facial and as-applied takings challenges raised in state court are identical to the federal claims asserted by the plaintiffs, and are based on the same factual allegations," Judge Michael Daly Hawkins wrote for the Ninth Circuit. "The California Supreme Court decision was a final judgment on the merits."
Attorneys for the San Remo said they would ask the U.S. Supreme Court to accept the case. They believe the high court could take the case because there is a split amongst the circuit courts on "issue preclusion." Last year, the Second U.S. Circuit Court of Appeals decided to "part ways with most of our sister circuits" and, in a case similar to the San Remo litigation, ruled that the federal court should consider the property owner’s claims even though the state court had ruled on them. That case is Santini v. Conn. Hazardous Waste Mgmt. Serv., 342 F3d 118.
The Ninth Circuit declined to follow the Santini decision and instead relied on U.S. Supreme Court and Ninth Circuit precedents.
The controversy over San Francisco’s regulation of residential hotels started during the late 1970s, when a shortage of affordable housing became acute. In 1981, the city adopted a hotel conversion ordinance (HCO) — which the city amended in 1990 — that prohibited the conversion of residential units to tourist use unless hotel owners replaced the converted units with new affordable housing or paid a mitigation fee.
When the ordinance first took effect, the San Remo was classified as a 62-unit residential hotel based on a survey of the hotel operator. The hotel owners, Thomas and Robert Field, later disputed that classification, saying they always provided a majority of rooms to tourists. City officials stuck with the residential classification and said the Field brothers would have to pay $567,000 — equal to $9,000 per room, or 40% of replacement costs — to convert the hotel to tourist use. The owners eventually paid the fee in protest but they also filed a lawsuit in federal court alleging that the law itself and the city’s application of the law amounted to a taking of private property. The Ninth Circuit eventually kicked the case to state court. That decision became known as San Remo I. San Remo Hotel v. City and County of San Francisco, (9th Cir. 1998) 145 F3d 1095; see CP&DR Legal Digest, July 1998.
On the state court side, the trial court ruled for the city before a state appellate court said the lower court used the wrong criteria. In what became San Remo II, the state Supreme Court then ruled 4-3 for the city. San Remo Hotel v. City and County of San Francisco, 27 Cal.4th 643 (2002); see CP&DR Legal Digest, April 2002, October 2000. The big issue in San Remo II was whether to extend the "heightened scrutiny" requirement of the Nollan and Dolan line of cases to San Francisco’s hotel conversion ordinance. The state Supreme Court ruled that heightened scrutiny — which requires a close relationship between the exaction and the project’s impact — did not apply to laws of general applicability, such as the HCO.
After the state Supreme Court ruling, the San Remo owners returned to federal court. District Court judge D. Lowell Jensen ruled against the hotel owners for a variety of reasons. The property owners appealed and a unanimous three-judge panel of the Ninth Circuit upheld the lower court.
The hotel owners argued that the doctrine of issue preclusion did not apply because they were forced into state court. Under Williamson County Reg’l Planning Comm’n v. Hamilton Bank, 473 U.S. 172 (1985), property owners must seek compensation for takings in state court before proceeding in federal court (see CP&DR Legal Digest, February 2004). Additionally, in San Remo I, the Ninth Circuit granted the hotel owners’ request for a "Pullman abstention," based on the 1941 case that requires a plaintiff to obtain a definitive ruling in state court before returning to federal court. Railroad Comm’n v. Pullman, 312 U.S. 496. And the hotel owners said they had reserved their federal claims.
But the Ninth Circuit ruled that the reason the hotel owners were in state court did not matter. Judge Hawkins cited Dodd v. Hood River County, 136 F.3d 1219 (9th Cir. 1998): "There is, in short, no reason to believe that Congress intended to provide a person claiming a federal right an unrestricted opportunity to relitigate an issue already decided in state court simply because the issue arose in a state proceeding in which he would rather not have been engaged at all."
Instead, what mattered to the Ninth Circuit was whether the state Supreme Court answered the same questions that the hotel owners were raising in federal court. Hawkins noted the state Supreme Court said it was construing the state and federal constitutional takings provisions congruently. Moreover, the state Supreme Court’s analysis and decision not to apply heightened scrutiny was "equivalent to the approach taken in this circuit," Hawkins wrote. Instead, the state Supreme Court used the "reasonable relationship" test, which is the same one the Ninth Circuit would use. Thus, the court concluded, "[F]ederal takings claims are barred from litigation under the doctrine of issue preclusion."
The San Remo Hotel v. San Francisco, No. 0315853, 04 C.D.O.S. 3231, 2004 DJDAR 4585. Filed April 14, 2004.
For San Remo: Paul Utrecht, (415) 956-8100.
For San Francisco: Andrew William Schwartz, City Attorney’s office, (415) 554-4620.